How do I determine my long-term financial goals?

The first step is to decide what you realistically want to achieve financially. Financial goals might include early retirement, travel, a vacation home, securing your family's financial comfort on the death of a bread-winner, planning for the care of elderly relatives or building a family business.

Is there any validity to financial planning "rules of thumb" such as "saving 10 percent of your gross income?"

The following rules of thumb may work for some people, but they do not make financial sense for everyone. What is more important is to be able to know whether a particular rule of thumb suits your situation. Here are six of the more common rules along with some considerations that should not be overlooked.

1. Life insurance should equal five times your yearly salary.

This rule of thumb has been used to answer the question: How much life insurance should I have? The ideal amount of life insurance is the amount that will, when invested, generate enough income to allow your survivors to maintain the level of income they are used to. "Five times your salary" will accomplish this objective in some cases, but there is no substitute for making the calculations necessary to find out how much life insurance you need to buy for your particular situation. The amount of life insurance you need depends on how many people there are in your family, whether there are other sources of income besides your salary, how old your children are, and a few other factors.

2. Save 10 percent of your salary per year.

You may need to save much more than ten percent of your gross income to have a comfortable retirement. The amount you need to save for retirement depends on how large your existing nest egg is and how old you are. Those who started saving late in life, for instance in their 40s, need to save at least 15 or 20 percent per year.

3. Contribute as much as you can to retirement plans.

This makes sense for most people, but if you've accumulated a large amount of money in a retirement plan, say close to a million dollars, you may reach the point where the negatives of contributing to your retirement plan savings outweigh the positives.

4. You need 80 percent of your pre-retirement income to retire comfortably.

Although people may need 80 percent of their salaries during the first few years of retirement, later on, they are often able to live comfortably on less. The amount of income you need depends on whether you have paid off your mortgage, whether you will have other sources of retirement income, and other factors.

5. Subtract your age from 100 and invest that percentage in stocks.

This is one of those "cookie cutter" rules that only pans out for certain investors. For others, it results in a portfolio that is much too conservative. The best method of allocating percentages among various types of investments depends on your investment goals and needs and your willingness to risk your capital. In this case, rules of thumb do not serve the investor very well at all.

6. Maintain an emergency fund of six months' worth of expenses.

Depending on your family's situation, three months' worth of expenses might be enough. On the other hand, for some families, even six months' worth might be totally inadequate. The amount you should keep on hand depends on how easy it would be for you to take out a short-term loan and how much money you have in savings and investments among other things.

Do not rely on any rule of thumb to make financial decisions. Instead consider carefully what your needs and goals are, and then calculate what you'll need to do to fulfill them.

What do women in particular need to keep in mind with regard to financial planning?

With more women remaining single, nearly half of all marriages ending in divorce, and the odds of becoming a widow by the age of 55 hovering around 75 percent, nearly 9 out of 10 women will be solely responsible for their financial well-being at some point in their lives. But many are ill-prepared to do so.

Here are several areas where women fall behind when it comes to planning for their financial future:

• Women save considerably less for retirement, on average 60 percent less than men according to a 2010 study conducted by LIMRA of close to 2,500 employees. This is significant because women typically live longer than their male counterparts and need more retirement savings.

• In that same LIMRA study, 29 percent of men and only 14 percent of women consider themselves knowledgeable about financial services and products. Fifty-four percent of women felt at least somewhat knowledgeable about financial products and services, but nearly three-quarters of men felt the same way.

• And, in 2011 a Harris Interactive survey commissioned by RocketLawyer.com found that of the more than 1,000 people surveyed, 5 percent of the women do not have a will, 26 percent of them citing cost as the primary reason they don't have one.

What special problems do unmarried couples have to be concerned with in financial and estate planning?

In 2016, 18 million adults were cohabiting, according to a new Pew Research Center analysis of the Current Population Survey. This represents an increase of 29 percent since 2007. Because unmarried couples don't enjoy the same legal rights and protection as married couples do, financial planning considerations for issues such as retirement planning, estate planning, and taxes can be quite different. For example:

• Unmarried partners do not automatically inherit each other's property. When an unmarried partner dies intestate (without a will) the estate is divided according to laws of the state, with property and assets typically going to parents or siblings and rarely or never to the beloved partner. In other words, married couples who do not have a will have state intestacy laws to back them up, but unmarried couples need to have a will in place in order to make sure that their wishes are met.

• Couples who aren't married also do not have the right to speak for each other in the event of a medical crisis. If your life partner loses consciousness or becomes incapacitated, someone has to make a decision whether to go ahead with a medical procedure. That person should be you, but unless you have a health care directive such as a living will in place, you have no legal right to make decisions for your partner.

• Tax and estate issues are also more complicated. In most cases, it makes more sense not to own property such as a car or electronics equipment together or to have a joint loan. Whereas marital assets can be divided equally by a judge, there is no legal recourse for unmarried couples in the event of a breakup. Another example is home ownership. If one partner is listed as the sole owner of a home that the couple lives in together and he or she dies, the surviving partner might be left homeless. This can be resolved by properly titling assets, in this case making sure the home is in joint tenancy with rights of survivorship.

Who is entitled to Social Security disability benefits?

An individual who is determined to be "disabled" by the Social Security Administration receives an Award Letter, which is a notice of decision that explains how much the disability benefit will be and when payments start. It also tells you when you can expect your condition to be reviewed to see if there has been any improvement.

If family members are eligible, they will receive a separate notice and a booklet about things they need to know.

Under the Social Security disability insurance program (Title II of the Act), there are three basic categories of individuals who can qualify for benefits on the basis of disability:

• A disabled insured worker under full retirement age.

• An individual disabled since childhood (before age 22) who is a dependent of a parent entitled to Title II disability or retirement benefits or was a dependent of a deceased insured parent.

• Disabled widow or widower, age 50-60 if the deceased spouse was insured under Social Security.

• Been disabled or expected to be disabled for at least 12 months

• Has filed an application for benefits, and

• Completed a five-month waiting period; however, the 5-month waiting period does not apply to individuals filing as children of workers. Under SSI, disability payments may begin as early as the first full month after the individual applied or became eligible for SSI. In addition, if you become disabled a second time within five years after your previous disability benefits stopped, there is no waiting period before benefits start.

  Under Title XVI or SSI, there are two basic categories under which a financially needy person can get payments based on disability:

  • An adult age 18 or over who is disabled.

  • Child (under age 18) who is disabled.

  For all individuals applying for disability benefits under Title II and for adults applying under Title XVI, the definition of disability is the same. The law defines disability as the inability to engage in any substantial gainful activity

  (SGA) because of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.Meeting this definition under Social Security is difficult. Insured means that you have accumulated sufficient credits in the Social Security system. Visit the Social Security Administration's Website to apply for an estimate.

When do Social Security disability benefits begin?

If you are getting disability benefits on your work record, or if you are a widow or widower getting benefits on a spouse's record, there is a five-month waiting period, and your payments will not begin until the sixth full month of disability. The 5-month waiting period does not apply to individuals filing as children of workers. Under SSI, disability payments may begin as early as the first full month after the individual applied or became eligible for SSI.

If the sixth month has passed, your first payment may include some back benefits. Your payment should arrive on the third day of every month. If the third falls on a Saturday, Sunday, or legal holiday, you will receive your payment on the last banking day before that day. The payment you receive is the benefit for the previous month. The payment you receive on July 3 (or dated July 3 if you get a paper check) is for June. Ninety-nine percent of recipients receive direct deposit; however, your benefit can be mailed or deposited directly into your bank account.

Are Social Security disability benefits taxable?

Some people who get Social Security must pay taxes on their benefits. The rules are the same regardless of whether Social Security benefits are received due to retirement or disability. You must pay taxes if you file a federal tax return as an "individual" and your combined income is more than $25,000. Combined income is defined as your adjusted gross income + Nontaxable interest + 1/2 of your Social Security benefits. If you file a joint return, you may have to pay taxes if you and your spouse have a combined income of more than $32,000. If you are married and file a separate return, you will probably pay taxes on your benefits. Social Security has no authority to withhold state or local taxes from your benefit. Many states and local authorities do not tax Social Security benefits. However, you should contact your state or local taxing authority for more information.

How long do Social Security disability payments continue?

Your disability benefits generally continue for as long as your impairment has not medically improved and you cannot work. They will not necessarily continue indefinitely, however.

Because of advances in medical science and rehabilitation techniques, an increasing number of people with disabilities recover from serious accidents and illnesses. Also, through determination and effort, many individuals overcome serious conditions and return to work in spite of them.

What happens to Social Security disability benefits when I reach retirement age?

If you disagree with SSA's decision, you can appeal it. You have 60 days to file a written appeal (either by mail or in person) with any Social Security office. Generally, there are four levels to the appeals process. They are:

• Reconsideration. Your claim is reviewed by someone who did not take part in the first decision.

• Hearing before an Administrative Law Judge. You can appear before a judge to present your case.

• Review by Appeals Council. If the Appeals Council decides your case should be reviewed, it will either decide your case or return it to the administrative law judge for further review.

• Federal District Court. If the Appeals Council decides not to review your case or disagree with its decision, you may file a civil lawsuit in a Federal

District Court and continue your appeal to the US Supreme Court if necessary.

If you disagree with the decision at one level, you have 60 days to appeal to the next level until you are satisfied with the decision or have completed the last level of appeal.

You have two special appeal rights when a decision is made that you are no longer disabled.

They are as follows:

Disability Hearing. As part of the reconsideration process, this hearing allows you to meet face-to-face with the person reconsidering your case to explain why you feel you are still disabled. You can submit new evidence or information and bring someone who knows about your disability. This special hearing does not replace your right to also have a formal hearing before an administrative law judge (the second appeal step) if your reconsideration is denied.

Continuation of Benefits. While appealing your case, you can have your disability benefits and Medicare coverage (if you have it) continue until an administrative law judge decides the outcome. However, you must request the continuation of your benefits during the first ten days of the 60 days mentioned earlier. If your appeal is unsuccessful, you may have to repay the benefits.

Retirement benefit calculations are based on your average earnings during a lifetime of work under the Social Security system. For most current and future retirees, The Social Security Administration (SSA) averages your 35 highest years of earnings. Years in which you have low earnings or no earnings may be counted to bring the total years of earnings up to 35.

You can collect early retirement benefits at age 62, but keep in mind that for anyone born from 1943 to 1954, the full retirement age is 66, and it increases gradually until it reaches 67 for those born in 1960 and later. Then you can collect additional benefits for every year you delay your retirement until age 70. After you begin to collect Social Security benefits, you will continue to receive them for life.

How can I find out what Social Security will pay me when I retire?

You can create a my Social Security account with SSA and view your Social Security Statement online at any time.

Can I count on Social Security being around when I retire?

With retirement on the horizon for scores of baby boomers, Social Security will likely be in your future; however, the Social Security trust fund will be less and less able to pay benefit increases, which increase annually as the taxable wage base rises without some kind of reform.

What are variable annuities?

Variable annuity contracts are sold by insurance companies. Purchasers pay a premium of, for example, $10,000 for a single payment variable annuity or $50 a month for a periodic payment variable annuity. The insurance company deposits these premiums in an account that is invested in a portfolio of securities. The value of the portfolio goes up or down as the prices of its securities rise or fall.

After a specified period of time, which often coincides with the year the purchaser turns age 65, the assets are converted into annuity payments. Although the insurance company guarantees a minimum payment, these payments are variable, since they depend on the periodic performance of the underlying securities.

Almost all variable annuity contracts carry sales charges, administrative charges, and asset charges. The amounts differ from one contract to another and from one insurance company to another.

Fixed annuity contracts are not considered securities and are not regulated by the SEC (Securities and Exchange Commission).

How do annuities work?

An annuity, in essence, is insurance against "living too long." In contrast, traditional life insurance guards against "dying too soon." Briefly, here is how annuities function: An investor hands over funds to an insurance company. The insurer invests the funds. At the end of the annuity's term, the insurer pays the investor his or her investment plus the earnings. The amount paid at maturity may be a lump sum or an annuity, which is a set of periodic payments that are guaranteed as to amount and payment period.

Earnings that occur during the term of the annuity are tax-deferred and an investor is not taxed until the amounts are paid out. Because of the tax deferral, your funds have the chance to grow more quickly than they would in a taxable investment.

Should I invest in annuities?

There are two reasons to use an annuity as an investment vehicle:

1. You want to save money for a long-range goal, and/or

2. You want a guaranteed stream of income for a certain period of time.

Annuities lend themselves well to funding retirement, and, in certain cases, education costs.

One negative aspect of an annuity is that you cannot get to your money during the growth period without incurring taxes and penalties. The tax code imposes a 10 percent premature withdrawal penalty on money taken out of a tax-deferred annuity before age 59-1/2, and insurers impose penalties on withdrawals made before the term of the annuity is up. The insurers' penalties are termed "surrender charges," and they usually apply for the first seven years of the annuity contract.

These penalties lead to a de facto restriction on the use of annuities as an investment. It really only makes sense to put your money in an annuity if you can leave it there for at least ten years, and only when the withdrawals are scheduled to occur after age 59-1/2. This is why annuities work well mostly for retirement needs, or for education funding in cases where the depositor will be at least 59-1/2 when withdrawals begin.

Annuities can also be effective in funding education costs where the annuity is held in the child's name under the provisions of the Uniform Gifts to Minors Act. The child would then pay tax on the earnings when the time came for withdrawals. A major drawback to this planning technique is that the child is free to use the money for any purpose, not just education costs.

If an investment adviser recommends a tax-deferred variable annuity, should you invest it? Or would a regular taxable investment be better?

Generally, you should be aware that tax-deferred annuities very often yield less than regular investments. They have higher expenses than regular investments, and these expenses eat into your returns. On the plus side, the annuity provides a death benefit. You should also be aware that there may be a commission on the product an investment adviser may be entitled to a commission on the product he or she is recommending.

Should a retiree purchase an immediate annuity?

At first glance, the immediate annuity would seem to make sense for retirees with lump-sum distributions from retirement plans. After all, an initial lump-sum premium can be converted into a series of monthly, quarterly or yearly payments, representing a portion of principal plus interest, and guaranteed to last for life. The portion of the periodic payout that is a return of principal is excluded from taxable income.

However, there are risks. For one thing, when you lock yourself into a lifetime of level payments, you aren't guarding against inflation. You are also gambling that you will live long enough to get your money back. Thus, if you buy a $150,000 annuity and die after collecting only $60,000, the insurer often gets to keep the rest. Unlike other investments, the balance doesn't go to your heirs. Furthermore, since the interest rate is fixed by the insurer when you buy it, you are locking into today's low rates.

You can hedge your bets by opting for what's called a "certain period," which, in the event of your death, guarantees payment for some years to your beneficiaries. There are also "joint-and-survivor" options, which pay your spouse for the remainder of his or her life after you die, or a "refund" feature, in which a portion of the remaining principal is resumed to your beneficiaries.

Some plans offer quasi-inflation adjusted payments. One company offers a guaranteed increase in payments of 10 percent at three-year intervals for the first 15 years. Payments are then subject to an annual cost-of-living adjustment, with a 3 percent maximum. However, for these enhancements to apply, you will have to settle for much lower monthly payments than the simple version.

A few companies have introduced immediate annuities that offer potentially higher returns in return for some market risk. These "variable, immediate annuities" convert an initial premium into a lifetime income; however, they tie the monthly payments to the returns on a basket of mutual funds.

If you want a comfortable retirement income, your best bet is a balanced portfolio of mutual funds. If you want to guarantee that you will not outlive your money, you can plan your withdrawals over a longer time horizon.

How do life annuities differ from life insurance?

While traditional life insurance guards against "dying too soon," an annuity, in essence, can be used as insurance against "living too long." With an annuity, you will receive in return a series of periodic payments that are guaranteed as to amount and payment period. Thus, if you choose to take the annuity payments over your lifetime (there are many other options), you will have a guaranteed source of "income" until your death.

If you "die too soon" (that is, you don't outlive your life expectancy), you will get back from the insurer far less than you paid in. On the other hand, if you "live too long" and outlive your life expectancy you may get back far more than the cost of your annuity--along with the resultant earnings. By comparison, if you put your funds into a traditional investment, you may run out of funds before your death.

What's the down side to buying an annuity?

You cannot get to your money during the growth period without incurring taxes and penalties. The tax code imposes a 10 percent premature-withdrawal penalty on money taken out of a tax-deferred annuity before age 59-1/2 and insurers impose penalties on withdrawals made before the term of the annuity is up. The insurers' penalties are termed "surrender charges," and they usually apply for the first seven years of the annuity contract.

What types of annuities are available?

You can purchase a single-premium annuity, in which the investment is made all at once (perhaps using a lump sum from a retirement plan payout).

With the flexible-premium annuity, the annuity is funded with a series of payments. The first payment can be quite small.

The immediate annuity starts payments right after the annuity is funded. It is usually funded with a single premium, and is usually purchased by retirees with funds they have accumulated for retirement.

With a deferred annuity, payouts begin many years after the annuity contract is issued. Deferred annuities are used as long-term investment vehicles by retirees and non-retirees alike. They are used in tax-deferred retirement plans and as individual tax-sheltered annuity investments, and may be funded with a single or flexible premium.

With a fixed annuity contract, the insurance company puts your funds into conservative, fixed income investments such as bonds. Your principal is guaranteed, and the insurance company gives you an interest rate that is guaranteed for a certain minimum period--from a month to a year, or more. A fixed annuity contract is similar to a CD or a money market fund, depending on length of the period during which interest is guaranteed, and is considered a low risk investment vehicle.

This guaranteed interest rate is adjusted upwards or downwards at the end of the guarantee period.

All fixed annuities also guarantee you a certain minimum rate of interest of 3 to 5 percent for the entirety of the contract.

The fixed annuity is a good annuity choice for investors with a low risk tolerance and a short-term investing time horizon. The growth that will occur will be relatively low. In times of falling interest rates, fixed annuity investors benefit, while in times of rising interest rates they do not.

The variable annuity, which is considered to carry with it higher risks than the fixed annuity (about the same risk level as a mutual fund investment) gives you the ability to choose how to allocate your money among several different managed funds. There are usually three types of funds: stocks, bonds, and cash-equivalents. Unlike the fixed annuity, there are no guarantees of principal or interest. However, the variable annuity does benefit from tax deferral on the earnings.

You can switch your allocations from time to time for a small fee or sometimes for free.

The variable annuity is a good annuity choice for investors with a moderate to high risk tolerance and a long-term investing time horizon.

Today, insurers make available annuities that combine both fixed and variable features.

What are my options for collecting my annuity?

When it's time to begin taking withdrawals from your deferred annuity, you have several choices. Most people choose a monthly annuity-type payment, although a lump sum withdrawal is also possible. The size of your monthly payment depends on several factors including:

1. The size of the amount in your annuity contract

2. Whether there are minimum required payments

3. The annuitant's life expectancy

4. Whether payments continue after the annuitant's death

Summaries of the most common forms of payment (settlement options) are listed below. Keep in mind that once you have chosen a payment option, you cannot change your mind.

Fixed Amount gives you a fixed monthly amount (chosen by you) that continues until your annuity is used up. The risk of using this option is that you may live longer than your money lasts. If you die before your annuity is exhausted, your beneficiary gets the rest.

Fixed Period pays you a fixed amount over the time period you choose. For example, you might choose to have the annuity paid out over ten years. If you are seeking retirement income before some other benefits start, this may be a good option. If you die before the period is up, your beneficiary gets the remaining amount.

Lifetime or Straight Life payments continue until you die. There are no payments to survivors. The life annuity gives you the highest monthly benefit of the options listed here. The risk is that you will die early, thus leaving the insurance company with some of your funds.

Life with Period Certain gives you payments as long as you live (as does the life annuity) but with a minimum period during which you or your beneficiary will receive payments, even if you die earlier than expected. The longer the guarantee period is, the lower the monthly benefit will be.

Installment-Refund pays you as long as you live and guarantees that, should you die early, whatever is left of your original investment will be paid to a beneficiary.

Joint and Survivor. In one joint and survivor option, monthly payments are made during the annuitants' joint lives, with the same or a lesser amount paid to whoever is the survivor. In the option typically used for retired employees, monthly payments are made to the retired employee, with the same or a lesser amount to the employee's surviving spouse or other beneficiary. In this case, the spouse's (or other co-annuitant's) death before the employee won't affect what the survivor employee collects. The amount of the monthly payments depends on the annuitants' ages and whether the survivor's payment is to be 100 percent of the joint amount or some lesser percentage.

What's the tax on payouts from a qualified plan or IRA annuity?

A tax-qualified annuity is one used to fund a qualified retirement plan, such as an IRA, Keogh plan, 401(k) plan, SEP (Simplified Employee Pension), or some other retirement plan.

1. Any nondeductible or after-tax amount you put into the plan is not subject to income tax when withdrawn

2. The earnings on your investment are not taxed until withdrawal.

If you withdraw money before the age of 59 1/2, you may have to pay a 10 percent penalty on the amount withdrawn in addition to the regular income tax. One of the exceptions to the 10 percent penalty is for taking the annuity out in equal periodic payments over the rest of your life.

Once you reach the age after which retirement plan required minimum distributions (RMDs) must begin (age 73 for 2024 through 2032), you will have to start taking withdrawals in certain minimum amounts specified by the tax law (with exceptions for Roth accounts and certain other retirement accounts of employees still working).

Is it a good idea to buy annuities for my IRA or qualified plan?

Though this is sometimes done, no tax advantage is gained by putting annuities in such a plan since qualified plans and IRAs as well as annuities are tax-deferred. It might be better, depending on your situation, to put other investments such as mutual funds in IRAs and qualified retirement plans, and hold annuities in your individual account.

How will my annuity payouts be taxed?

Payouts are taxed differently for qualified and non-qualified plans. These differences are summarized below.

Qualified and Non-Qualified Annuities

A tax-qualified annuity is one used to fund a qualified retirement plan, such as an IRA, Keogh plan, 401(k) plan, SEP (Simplified Employee Pension), or some other retirement plan. The tax-qualified annuity, when used as a retirement savings vehicle, is entitled to all of the tax benefits-and penalties--that Congress saw fit to attach to such plans.

The tax benefits are:

1. The amount you put into the plan is not subject to income tax, and/or

2. The earnings on your investment are not taxed until withdrawal.

A non-qualified annuity, on the other hand, is purchased with after-tax dollars. You still get the benefit of tax deferral on the earnings.

Tax Rules for Qualified Annuities

When you withdraw money from a qualified plan annuity that was funded with pre-tax dollars, you must pay income tax on the entire amount withdrawn.

Once you reach the age after which retirement plan required minimum distributions (RMDs) must begin (age 73 for 2024 through 2032), you will have to start taking withdrawals, in certain minimum amounts specified by the tax law.

Tax Rules for Non-Qualified Annuities

With a non-qualified plan annuity that was funded with after-tax dollars, you pay tax only on the part of the withdrawal that represents earnings on your original investment.

If you make a withdrawal before the age of 59-1/2, you will pay the 10 percent penalty only on the portion of the withdrawal that represents earnings.

With a non-qualified annuity, you are not subject to RMDs after age 73.

What tax must my beneficiaries or heirs pay if my annuity continues after my death?

Taxes may apply to your beneficiary (the person you designate to take further payments) or your heirs (your estate or those who take through the estate if you didn't designate a beneficiary).

Income tax. Annuity payments collected by your beneficiaries or heirs are subject to tax on the same principles that would apply to payments collected by you.

Exception: There's no 10 percent penalty on withdrawal under age 59-1/2 regardless of the recipient's age, or your age at death.

Estate tax. The present value at your death of the remaining annuity payments is an asset of your estate and subject to estate tax with other estate assets. Annuities passing to your surviving spouse or to charity would escape this tax.

How should I shop for an annuity?

Check Out The Insurer. Make sure that the insurance company offering it is financially sound. Annuity investments are not federally guaranteed, so the soundness of the insurance company is the only assurance you can rely on. Several services rate insurance companies.

Compare Contracts. For immediate annuities: Compare the settlement options. For each $1,000 invested, how much of a monthly payout will you get? Consider the interest rate and any penalties and charges.

Deferred annuities. Compare the rate, the length of guarantee period, and a five-year history of rates paid on the contract, not just the interest rates.

Variable annuities. Check out the past performance of the funds involved.

If a particular fund has a great track record, ascertain whether the same management is still in place. Although past performance is no guarantee, consistent management will grant you better odds.

Is it better to take an annuity or a lump-sum distribution?

As in so many areas of retirement planning, that depends upon your particular needs and circumstances.

An annuity preserves the tax shelter for funds not yet paid out as annuity income, continuing to grow tax-free to fund future payouts.

A lump sum withdrawal may be preferable for those in questionable health.

Consider an annuity with a "refund feature" that guarantees a fixed sum to your heirs should you die earlier than expected.

\What is a joint and survivor annuity?

A joint and survivor annuity pays a certain annuity during your life and half that amount (it could be more) to your surviving spouse for life.

In almost all cases, the annual amount you will get under a joint and survivor annuity will be less than you would get under an annuity on your life alone.

Can I change from a joint and survivor annuity if it doesn't meet my needs?

Joint and survivor annuities are almost always required in pension plans, and sometimes in other plans. But you and your spouse can still agree to some other form.

Chief reasons for such agreement are so that your child or other family member can share in the income, or to take a lump sum distribution, or to take a larger annual amount over the participant's life alone.

What are the steps in the investment process?

The investment process is comprised of several steps that enable you to select a portfolio appropriate to your risk tolerance and desired return. The primary steps in this process are:

-Determine your desired return and risk tolerance

-Develop an asset allocation plan

-Select diversified investments within each asset class

-Monitor your investments

Q: How are risk and return related?

A: Risk and return are positively correlated. The higher the risk of an investment, the higher a return it must offer in order to compensate for the risk. Risks come in many forms such as the volatility of the market, inflation risk, interest rate risk, and business risk. You must determine the degree of risk that you are willing to tolerate. Your investment professional can assist you in this process.

Select the level of risk that permits you to sleep at night. If you have a long investment horizon, then focus on your desired return. Year to year fluctuations should not be a concern. Over the long term, stocks have generated annual returns of about 10 to 11 percent and have had the highest level of risk while long-term government bonds have had long-term returns of 5 to 6 percent and have had the lowest level of risk. The more risk you can tolerate or the higher your desired rate of return, the higher the portion of your portfolio invested in stocks should be.

Q: What is an asset allocation plan?

A: Asset allocation is the distribution of investments among asset classes. Asset classes include different types of stocks, bonds, and mutual funds. It is a significant factor in determining your investment return relative to risk. Proper asset allocation maximizes returns and minimizes risk. This is because different classes of assets react differently to economic upswings or downswings. Allocation differs from diversification in that it balances a portfolio among different classes of assets, for example, growth stocks, long bonds, and large-company stocks, while diversification focuses on variety within an asset class. Generally, allocation among six or seven asset classes is recommended.

Q: What is diversification?

A: Diversification is the selection of multiple investments within a portfolio. For example, investing in a portfolio of 30 stocks rather than in just a few. By maintaining a diversified, varied portfolio, you are minimizing risk. You're less likely to make that "big killing," but when individual investments take a nose-dive, you won't take a big hit.

Q: How can I best monitor my investments?

A: Examine carefully and promptly any written confirmations of trades that you receive from your broker, as well as all periodic account statements. Make sure that each trade was completed in accordance with your instructions. Check to see how much commission you were charged, to make sure it is in line with what you were led to believe you would pay. If commission rates have increased or will increase in the immediate future, or if charges such as custodial fees are to be imposed, then you should be informed in advance.

If securities are held for you in street name (where the customer's securities and assets are held under the name of the brokerage firm instead of the name of the individual who purchased the security or asset), you may request that dividends or interest payments be forwarded to you or put into an interest-bearing account, if available, as soon as they are received, rather than at the end of the month or after some other lengthy period of time.

Set up a file where you can store information relating to your investment activities, such as confirmation slips and monthly statements sent by your broker. Keep notes of any specific instructions given to your account executive or brokerage firm. Good records regarding your investments are important for tax purposes, and also in the event of a dispute about a specific transaction.

Periodically, ask yourself the following questions about your investment:

-Is this investment performing as I was told it would?

-How much money will I get if I sell it today?

-How much am I paying in commissions or fees?

-Have my investment goals changed? If so, is the investment still suitable?

-Have I decided what contingencies need to happen for me to sell the investment (i.e., a certain percentage decrease in value)?

What types of risks are involved in investing?

Nobody invests to lose money. However, investments always entail some degree of risk. Be aware that:

1. The higher the expected rate of return, the greater the risk. Depending on market developments, you could lose some or all of your initial investment or a greater amount.

2. Some investments cannot easily be sold or converted to cash. Check to see if there is any penalty or charge if you must sell an investment quickly or before its maturity date.

3. Investments in securities issued by a company with little or no operating history or published information may involve greater risk.

5. Securities investments, including mutual funds, are not federally insured against a loss in market value.

6. Securities you own may be subject to tender offers, mergers, reorganizations, or third party actions that can affect the value of your ownership interest. Pay careful attention to public announcements and information sent to you about such transactions. They involve complex investment decisions. Be sure you fully understand the terms of any offer to exchange or sell your shares before you act. In some cases, such as partial or two-tier tender offers, failure to act can have detrimental effects on your investment.

6. The past success of a particular investment is no guarantee of future performance.

What steps can I take to avoid unnecessary risks?

1. Never give in to high pressure. A high-pressure sales pitch can mean trouble. Be suspicious of anyone who tells you, "Invest quickly or you will miss out on a once in a lifetime opportunity."

2. Never send money to purchase an investment based simply on a telephone sales pitch.

3. Never make a check out to a sales representative.

4. Never send checks to an address different from the business address of the brokerage firm or a designated address listed in the prospectus.

If your broker asks you to do any of these things, contact the branch manager or compliance officer of the brokerage firm.

5. Never allow your transaction confirmations and account statements to be delivered or mailed to your sales representative as a substitute for receiving them yourself. These documents are your official record of the date, time, amount, and price of each security purchased or sold. Verify that the information in these statements is correct.

What questions should I ask before making any investment?

Have this list of questions with you the next time you talk to your broker. Write down the answers you get and the action you decide to take. Your notes may come in handy later if there is a dispute or a problem. A good broker will be happy to answer your questions and will be impressed with your seriousness and professionalism.

-Is this investment registered with the SEC and a state securities agency?

-Does the investment match my investment goals?

-How will the investment make money for me (dividends, interest, capital gains)?

-What set of circumstances have to occur for the value of the investment to go up? To go down? (e.g., must interest rates rise?)

-What fees do I have to pay to buy, maintain, and sell the investment? After fees, how much does the value have to increase by before I make a profit?

-How easy is it for me to unload this investment in a hurry, should I need the money?

-What are the specific risks associated with this investment, for example what is the risk that rising interest rates will devalue your investment or the risk that an economic recession could decrease its value?

-Is the company experienced at what it is doing? How long has it been in business? -What is their track record? Who are their competitors?

-Can I get more information: a prospectus, the latest SEC filings, or the latest annual report?

What questions should I ask before making a mutual fund investment?

Here is a list of potential questions to ask before making a mutual fund investment:

• How has the fund performed over the long run? Where can I get an independent evaluation of it?

• What specific risks are associated with it?

• What type of securities does the fund hold?

• How often does the portfolio change?

• Does this fund invest in derivatives, or in any other type of investment that could cause rapid changes in the NAV (Net Asset Value)?

• How does the fund's performance compare to other funds of its type, or to an index of similar investments?

• How much of a fee will I have to pay to buy shares? To maintain shares?

• How often will I get statements? Can you explain what the statement tells me about the investment?

What investment hazards should I look out for?

There are no magic formulas for successful investing. It takes a disciplined, reasoned approach, a commitment to follow some basic, solid rules that have proved effective over time, and to stay in it for the long haul.

Here are some specific tips.

Don't Let Greed Cloud Your Better Judgment. A disciplined approach, taking into account your investment objectives, will pay dividends in more ways than one. Investors who are constantly chasing the jackpot usually lose in the long run.

Don't Rely on Tips. The "hot tip" is the bane of investors. There may be short-term gain in some cases, but in this regard, it's generally wise to follow the maxim, "What goes up must come down."

Be Resolute. Develop a comprehensive, reasoned plan with your adviser, and stick to it, despite the temptation to "take a flyer." When you have developed your plan, and in the absence of other factors, follow it.

Consider All Your Needs and Get a Plan That Fits. For financial planning to be truly effective, all your needs must be considered: money management, tax planning, retirement planning, estate planning, insurance, etc.

Evaluate Investments Periodically. An investment program is not static and unchanging. Your financial situation and objectives may change, as does the economic situation. Review your plan with your adviser and, if necessary, update it to reflect your current and long-term needs.

Monitor your investments. Stay informed. Don't rely on others to "take care of" your portfolio. Keep up with your reading, whether in newsletters, magazines, or the internet.

Read Broker-Account Forms With Care. Many investors pay scant attention to the forms involved in opening and maintaining a brokerage account. As pointed out earlier, many investors are not aware that much of the paperwork is intended, at least in part, to protect the broker and the form against any complaints they might bring.

What should I invest my IRA in?Like any other investment, you should match the portfolio with your desired return, risk tolerance and investment time horizon. The higher your desired return and risk tolerance and the longer your time horizon, the greater the portion of your portfolio should be in equity investments such as common stocks. Since IRAs are generally long-term investments, equity investments are generally appropriate for a portion of the account.

For those with a lower risk tolerance, short-term fixed income investment would be appropriate. Many people have their IRAs invested in CDs. This is appropriate only for those with a very short time horizon or very low-risk tolerance. IRA money, like any other investment, should be invested in something that will provide a decent return.Municipal bonds should never be used within an IRA. In doing so, you sacrifice return and may convert otherwise tax-free income to taxable income when you withdraw the funds.

What are derivatives and options?

A derivative is an investment instrument whose value is based on underlying assets such as stocks, bonds, commodities, currencies, interest rates and market indexes. Options are one of the most common types of derivatives and are a useful tool for enhancing a portfolio's income and in many cases, reducing risk. Other types of derivatives include futures contracts, forward contracts, and swaps, but these are more appropriate for sophisticated investors.

Stock options are contracts that give the purchaser the right to buy or sell at a specific price and within a certain period of time, for instance, 100 shares of corporate stock (known as the underlying security). These options are traded on a number of stock exchanges and on the Chicago Board Options Exchange.

When investors buy an option contract, they pay a premium, typically the price of the option as well as a commission on the trade. If they buy a "call" option, they are speculating that the price of the underlying security will rise before the option period expires. If they buy a "put" option, they are speculating that the price will fall.

While options trading can be very useful as part of an overall investment strategy, it can also be very complicated and sometimes extremely risky. If you plan to trade in options, make sure that you understand basic options strategy and that your registered representative is qualified in this area.

How can I avoid the most frequent money-losing mistakes?

Here are the top mistakes that cause investors to lose money unnecessarily.

• Using a cookie-cutter approach

• Taking unnecessary risks

• Allowing fees and commissions to eat up profits

• Not starting early enough

• Ignoring the costs of taxes

• Letting emotion govern your investing

Q: Should I use a standard asset allocation formula such as those seen in many popular finance magazines?

A: Most investors are satisfied with a one-size-fits-all investment plan. However, your individual needs as an investor must govern any plans you make. For instance, how much of your investment can you risk losing? What is your investment timetable? (i.e., are you retired or a young professional?) The allocation of your portfolio's assets among various types of investments should match your particular needs.

Q: Can I make a decent return without taking unnecessary risks?

A: You do not have to risk your capital to make a decent return on your money. While all investments have some degree or risk, many investments that offer a return that beats inflation without unduly jeopardizing your hard-earned money. For instance, Treasuries are one of the safest possible investments and offer a decent return with very little risk.

Q: What is the downside of high fees and commissions?

A: Many investors allow brokers' commissions, fees, and other costs to cut into their returns. Be aware of the fees you are paying and make sure they are appropriate for the services you are receiving. The more you pay in fees the lower your net return will be.

Q: When should I start investing?

A: Today. Many investors are not cognizant of the power of interest compounding. By starting out early enough with your investment plan, you can invest less, and in the long run, still come out ahead of where you would be if you start later in life.

Q: What is the impact of taxes on my investment returns?

A: Net profits on your share of your mutual funds' stock sales are taxable to you as capital gains. Unless you are in a tax-deferred retirement account, the taxes will eat into your profits. The solution? Invest in funds where shares are bought and sold less frequently and have a low turnover rate (10 percent or less per year).

Q: Should I let my emotions affect my investments?

A: Never give in to pressure from a broker to invest in a "hot" security or to sell a fund and get into another one. The key to a successful portfolio lies in planning, discipline, and reason. Emotion and impulse have no role to play. Try to stay in a security or fund for the long haul. On the other hand, when it's time to unload a loser, then let go of it. Finally, do not fall prey to the myth of "market timing." This is the belief that by getting into or out of a security at exactly the right moment, we can retire rich. Market timing does not work.

Instead, use investment strategies that do work: a balanced allocation of your portfolio's assets among securities that suit your individual needs, the use of dollar-cost averaging and dividend-reinvestment programs, and a well-disciplined, long-haul approach to saving and investment.

What is the difference between my cumulative return and annualized return?

Suppose Mr. N. Vestor invests $100 in an investment that earns 10 percent this year and 10 percent the next year. What is his cumulative return? The answer is 21 percent.

Here's why. N. Vestor's 10 percent gain makes his $100 grow to $110. Next year, he earns another 10 percent, leaving him with $121. His investment has earned a cumulative 21 percent return over two years. His annualized return, however, is 10 percent.

The fact that the cumulative return of 21 percent is greater than twice the 10 percent annual return is due to the effect of compounding, which means that your yearly earnings are added to your original investment before the current year's earnings are applied.

What is the rule of 72?

The rule of 72 is a way of finding out long it will take for your investment to double. Divide an investment's annual return into 72, and you will have the number of years necessary to double your investment.

An investment's annual return is 10 percent. Ten percent divided into 72 is 7.2, so your investment will double in 7.2 year.

What is "Total Return" and why is it important?

If you reinvest all of your gains, including dividends and interest, you will be getting the most from compounding. The percentage you achieve is termed "total return." It includes appreciation, interest and dividends. It is particularly important in examining the past and current performance of mutual funds.

Mutual funds must, by law, distribute almost all of their capital gain and dividend income each year. Many investors reinvest these distributions, using them to buy more fund shares. Because the fund's share price is reduced after a fund makes a distribution, the long-term price trend of a fund's shares may not accurately reflect the fund's performance. However, the fund's total return, which takes into account reinvested dividends, is often a more accurate reflector of the fund's performance.

How does "yield" differ from "total return?"

Yield is the amount of dividends or interest paid annually by an investment. The yield is usually expressed as a percentage of the investment's current price. It does not consider appreciation.

Because certificates of deposit and money-market funds maintain the same value, their total return does not differ much from their yield. But because stocks and bonds fluctuate in price, there can be a large difference between yield and total return.

Can I measure my return as the increase in the value of my portfolio over a given period?

Investors often take the following shortcut, which often yields misleading results. Instead of looking at total return, they simply compare their year-end portfolio value with the value at the beginning of the year, and attribute the entire growth to investment gains.

The reason this shortcut may be misleading is that any additional investments or withdrawals made during the year are not taken into account.

How should I take distributions from my retirement plan?

If your assets are in a tax-favored retirement fund such as a company or Keogh pension or profit-sharing plan (including thrift and savings plans), 401(k), IRA, or stock bonus plan, when it comes time to take distributions, you have several options:

• Take everything in a lump sum

• Keep the money in the account, with regular distributions or withdrawals on an as-needed basis

• Purchase an annuity with all or part of the funds

• Take a partial withdrawal (leaving the balance for withdrawal later)

• Take a rollover distribution

• A combination of any of the above

Your retirement assets may be distributed in kind-as employer stock or an annuity or insurance contract. Sometimes certain withdrawal options may be associated with certain retirement plans; for instance, annuities are more common with pension plans. Other types of plans favor the other options, but for the most part, most of these options are available for most plans. And more than likely, you'll want to preserve the tax shelter as long as possible by withdrawing no more than you need at any given time.

Timing your withdrawal can be a factor, too. Withdrawals before the age of 59 ½ risk a tax penalty. At the other end, withdrawals are generally required to start at age 73 for taxpayers born between 1951 and 1959 (75 for those born in 1960 or later) or face a tax penalty. The only exceptions are Roth IRAs and non-owner-employees still working beyond that age.

When is it best to take a lump-sum distribution from my retirement plan?

Your personal needs should decide. You may need a lump sum to buy a retirement home or business. If your employer requires that you take a lump sum distribution, it may be wise to roll it over into an IRA.

What should I do about my retirement plan assets in my ex-employer's plan if I change jobs?

There are several things you might do depending upon your needs:

If you don't need the assets to live on, try to continue the tax shelter and leave the money where it is.

Transfer or roll over the assets into your new employer's plan--if that plan allows it (this can be tricky, though).

If you've decided to start your own business, set up a Keogh and move the funds there.

Roll them over into your IRA.

Can creditors get at my retirement assets?

In general, employer plans such as your 401(k), IRAs, and pension plan funds are protected from general creditors unless you've used these assets as securities against a loan or are entering into bankruptcy. If this is the case, there's a chance they could be seized, but if the money is in a registered IRA, pension plan, or 401(k), it's more than likely they will be protected in case of bankruptcy (subject to state and federal law of course).

How will my state tax affect my retirement withdrawals?

Each state is different, but in general, consider the following:

While withdrawals are generally taxable in states with income tax, some offer relief for retirement income up to a specified dollar amount.

If your state doesn't allow deductions for Keogh or IRA investments allowed under federal law, these investments and sometimes more may come back tax-free.

State tax penalties for early or inadequate withdrawal are unlikely.

Can moving to another state when I retire save me state taxes on my retirement plan?

Money from retirement plans, including 401(k)s, IRAs, company pensions, and other plans, is taxed according to your residence when you receive it.

If you move from a state with a high-income tax, such as New York, to one with no personal income tax, such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, you will save money on state income tax.

However, establishing residence in a new state may take as long as one year; if you retain property in both states, you may owe taxes to both.

What is a reverse mortgage?

A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership. Reverse mortgages work much like traditional mortgages, only in reverse. Rather than making a payment to your lender each month, the lender pays you. Most reverse mortgages do not require any repayment of principal, interest, or servicing fees for as long as you live in your home.

Retired people may want to consider the reverse mortgage as a way to generate cash flow. A reverse mortgage allows homeowners age 62 and over to remain in their homes while using their built-up equity for any purpose: to make repairs, keep up with property taxes or simply pay their bills.

Reverse mortgages are rising-debt loans, which means that the interest is added to the principal loan balance each month (because it is not paid on a current basis). Therefore, the total amount of interest you owe increases significantly with time as the interest compounds. Reverse mortgages also use up some or all of the equity in your home.

All three loan plans, whether FHA-insured, lender-insured, or uninsured, charge origination fees and closing costs. Insured plans also charge insurance premiums, and some impose mortgage servicing charges.

Finally, homeowners should realize that if they're forced to move soon after taking the mortgage (because of illness, for example), they'll almost certainly end up with a great deal less equity to live on than if they had simply sold the house outright. That is particularly true for loans terminated in five years or less.

Will my heirs owe income taxes when they inherit my retirement assets?

Yes, generally under the same rules that would apply to your withdrawals of the same amounts had you lived - unless it's a Roth IRA. A Roth IRA is exempt from federal income tax if the account was opened five years before any withdrawals.

Also, your spouse can roll over your account to their IRA. No early withdrawal penalty applies, regardless of your beneficiary's age. However, a spouse who rolled over to an IRA may owe an early withdrawal penalty on IRA withdrawals taken before age 59 1/2.

Will my heirs owe estate taxes on inherited retirement assets?

Only a small percentage of estates (based on the value of one's assets at death (including large lifetime gifts) are subject to the estate tax, and there is no estate tax on assets passing to a surviving spouse or charity. However, if the estate is subject to federal estate tax (except in 2010, when there was no estate tax), you can deduct the portion of the federal estate tax attributed to the IRA. You also won't have to pay tax on the portion of withdrawals attributed to any nondeductible contributions made to the IRA.

Is estate tax deferred if my heir gets an annuity?

No. The estate is taxed on the annuity's present value.

How can I minimize or eliminate tax on inherited retirement assets?

You can minimize or eliminate tax on inherited retirement assets by using the following methods:

Leave them to your spouse. Doing so saves money owed to estate tax and helps postpone withdrawals subject to income tax - provided your spouse takes no withdrawals before age 59 1/2.

Leave them to charity. Although there's no financial benefit to the family, this saves income and estate taxes.

Leave them to family for life, with the remainder to charity in the form of a charitable remainder trust. This option reduces estate tax with some benefits to family.

Provide life insurance to pay estate tax on retirement assets. The benefit of this option is that it provides estate liquidity, avoiding taxable distributions to pay estate tax.

How should I take distributions from my retirement plan?

If your assets are in a tax-favored retirement fund such as a company or Keogh pension or profit-sharing plan (including thrift and savings plans), 401(k), IRA, or stock bonus plan when it comes time to take distributions, you have several options:

Take everything in a lump sum

Keep the money in the account, with regular distributions or withdrawals on an as-needed basis

Purchase an annuity with all or part of the funds

Take a partial withdrawal (leaving the balance for withdrawal later)

Take a rollover distribution

A combination of any of the above

Your retirement assets may be distributed in kind as employer stock or an annuity or insurance contract. Sometimes certain withdrawal options may be associated with certain retirement plans; for instance, annuities are more common with pension plans. Other types of plans favor the other options, but for the most part, most of these options are available for most plans. And more than likely, you'll want to preserve the tax shelter as long as possible by withdrawing no more than you need at any given time.

Timing your withdrawal can be a factor, too. Withdrawals before age 59 ½ risk a tax penalty. At the other end, withdrawals are generally required to start at age 73 for taxpayers born between 1951 and 1959 (75 for those born in 1960 or later) or face a tax penalty. The only exceptions are Roth IRAs and non-owner-employees still working beyond that age.

When is it best to take a lump-sum distribution from my retirement plan?

Your personal needs should decide. You may need a lump sum to buy a retirement home or business. If your employer requires that you take a lump sum distribution, it may be wise to roll it over into an IRA.

What should I do about my retirement plan assets in my ex-employer's plan if I change jobs?

There are several things you might do depending upon your needs:

If you don't need the assets to live on, try to continue the tax shelter and leave the money where it is.

Transfer or roll over the assets into your new employer's plan if that plan allows it (this can be tricky, though).

If you've decided to start your own business, set up a Keogh and move the funds there.

Roll them over into your IRA.

Can creditors get at my retirement assets?

In general, employer plans such as your 401(k), IRAs, and pension plan funds are protected from general creditors unless you've used these assets as securities against a loan or are entering into bankruptcy. If this is the case, there's a chance they could be seized, but if the money is in a registered IRA, pension plan, or 401(k), it's more than likely they will be protected in case of bankruptcy (subject to state and federal law of course).

How will my state tax affect my retirement withdrawals?

Each state is different, but in general, consider the following:

While withdrawals are generally taxable in states with income tax, some offer relief for retirement income up to a specified dollar amount.

If your state doesn't allow deductions for Keogh or IRA investments allowed under federal law, these investments and sometimes more may come back tax-free.

State tax penalties for early or inadequate withdrawal are unlikely.

I understand that I'm required to take money out of my retirement plan after I reach age 73. Why is that?

Retirement plans offer the biggest tax shelter in the federal system since funds grow tax-free while in the plan. But the shelter is primarily intended for retirement. So when you reach 73 (or shortly after that), you must start withdrawing money from the plan.

How can I continue the tax shelter for retirement plan assets after age 73?

The shelter can continue for many of those assets for a long time, assuming you don't need them to live on. You can spread withdrawals over a period based on, but longer than, your life expectancy, for example, over a period of at least 26.5 years if you're 73 now. You are free, however, to withdraw at a faster rate or even all of it if you wish. The shelter continues for whatever is not withdrawn.

Suppose there are still retirement assets in my account at my death. Can the shelter continue for those who receive those assets?

Many rules regarding inherited retirement accounts changed with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and the SECURE 2.0 Act of 2022. For example, if you're a spouse not more than ten (10) years younger than your deceased spouse, you will have different options than if you were more than ten (10) years younger. Due to the complexity of these rules, it is important to speak with a qualified financial advisor before making any decisions.

Can moving to another state when I retire save me state taxes on my retirement plan?

Money from retirement plans, including 401(k)s, IRAs, company pensions, and other plans, is taxed according to your residence when you receive it. You will save money on state income tax if you move from a state with a high personal income tax, such as New York or New Jersey, to one with no personal income tax, such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. However, establishing residence in a new state may take as long as one year; if you retain property in both states, you may owe taxes to both.

What is a reverse mortgage?

A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership. Reverse mortgages work much like traditional mortgages, only in reverse. Rather than making a payment to your lender each month, the lender pays you. Most reverse mortgages do not require any repayment of principal, interest, or servicing fees for as long as you live in your home.

Retired people may want to consider the reverse mortgage as a way to generate cash flow. A reverse mortgage allows homeowners age 62 and over to remain in their homes while using their built-up equity for any purpose: to make repairs, keep up with property taxes or simply pay their bills.

Reverse mortgages are rising-debt loans, which means that the interest is added to the principal loan balance each month (because it is not paid on a current basis). Therefore, the total amount of interest you owe increases significantly with time as the interest compounds. Reverse mortgages also use up some or all of the equity in your home.

All three loan plans, whether FHA-insured, lender-insured, or uninsured, charge origination fees and closing costs. Insured plans also charge insurance premiums, and some impose mortgage servicing charges.

Finally, homeowners should realize that if they're forced to move soon after taking the mortgage (because of illness, for example), they'll almost certainly end up with a great deal less equity to live on than if they had simply sold the house outright. That is particularly true for loans terminated in five years or less.

Should I purchase my own disability insurance policy?

Many of us have life insurance, however very few of us have long-term disability coverage. Yet according to statistics, workers are more likely to sustain a long-term disability (one lasting longer than 90 days) than die at an early age.

Long-term disability insurance is fairly expensive, and people tend to think that they will be protected by workers' compensation or other sources. However, Social Security, workers' compensation, and employer-offered long-term coverage are often inadequate.

How much disability insurance should I have?

A disability insurance company will usually not cover you for more than 60 percent of your income. Look for a policy that provides coverage for this level. When you shop for a disability policy, be ready to prove your income level. If you purchase the policy and pay the premiums yourself, the income received will not be taxable. Therefore, 60 percent should come close to replacing your after-tax income.

What does workers compensation insurance cover?

Worker's compensation covers injuries that happen on the job. Benefits vary widely from state to state but typically are equivalent to 66.67 percent of the average weekly wage for the previous 52 weeks. In addition, most states pay benefits for the employee's lifetime in cases of permanent total disability.

Tip: To get details on worker's comp benefits, contact your state Department of Labor.

In addition to the requirement that an injury is work-related, the payments you would receive under worker's comp may be inadequate.

How is disability defined?

The definition of disability in a policy is extremely important. It tells you under what circumstances you will qualify to receive benefits.

Own-occupation coverage pays benefits if you can't work in your chosen field--if you are an attorney or teacher, for example. Own-occupation policies are the most expensive type of disability coverage because they provide the broadest coverage. Generally, if you cannot perform the duties of your own occupation, you can take a job in a related field, make a decent income, and still collect the benefits.

Any-occupation coverage pays benefits if you can't work at any occupation for which your education level and training has prepared you. Therefore, if you can no longer perform the duties of a nuclear physicist, but you can teach physics at college level, you will not receive benefits.

Note: Many policies are own-occupation for a period of years, at which point they convert to any-occupation.

How does long-term care insurance work?

By 2020, 12 million older Americans will need long-term care. Most will be cared for at home; family and friends are the sole caregivers for 70 percent of the elderly. A study by the U.S. Department of Health and Human Services says that people who reach age 65 will likely have a 40 percent chance of entering a nursing home. About 10 percent of the people who enter a nursing home will stay there five years or more.

Your chances of needing long-term care vary with your age, health, family history and longevity, exercise habits, diet, smoking, and gender; however, women are often at higher risk simply because they live longer.

Long-term care insurance policies pay a set dollar amount per day for covered care during the benefit period stated in the policy.

Example: You choose a policy that pays $160 per day for five years. The maximum that policy will pay is $292,000 ($160 per day, times 365 days, times 5 years).

The older the individual covered, the higher the premium is. For instance, premiums for a set amount of coverage on a 70-year-old individual are about three times those that would apply to a 50-year-old.

Most long-term care policies are indemnity-type policies, meaning they will pay (up to the policy's limits) for actual charges by the care provider. Some long-term care policies, instead of being based on indemnity, pay daily benefit amounts to the insured rather than paying for actual charges. The latter type of policy offers insureds greater flexibility (e.g., allowing them to pay for home care) and less paperwork.

In a long-term care policy, what is the elimination period?

This period constitutes the number of days the insured must wait after becoming eligible for benefits before coverage actually begins.

The elimination period can range from zero to 90 days, or up to one year. The longer the elimination period, the lower the premium is.

How should I select a long-term care insurance provider?

If you decide that long-term care insurance (LTCI) is your best option, it is important to shop around for the right company. Some states have enacted important consumer protections in the LTCI area, while others have not. Do not assume the company is a safe bet just because it is licensed by the state insurance department to sell LTCI.

No matter how good a policy sounds, it is worth little if the company won't be there when it comes time to pay. Buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up a company's rating by A.M. Best or Standard and Poor's, both of which evaluate the financial health of insurance companies.

Tip: Purchase long-term care insurance from a company that has an A+ or A++ rating from Best or an A, AA, or AAA rating from Standard and Poor's. Most public libraries have these references.

When can I qualify for Medicaid insurance?

Eligibility rules vary from state to state, but beneficiaries are generally required to "spend down" their income and assets to qualify. New laws in many states make it possible for the spouses of Medicaid nursing home residents to keep more income and assets than previously allowed.

By law, nursing homes cannot discriminate against Medicaid patients, but in reality, many keep "waiting lists" for them while enrolling patients with more income and assets. Medicaid coverage for home care is very limited in most states.

Should I buy long-term care insurance?

Long term care insurance (LTCI) is both complex and controversial. It covers certain nursing home costs and sometimes home health care. Here is a summary of some of the main points for and against purchasing such coverage.

Reasons Against:

Inability to afford the premiums, or not having enough assets to protect. In such a case, the individual will quickly qualify for Medicaid.

Some LTCI policies lack sufficient home care coverage to keep an individual out of a nursing home unless family members or informal caregivers are available to help in providing care. Thus, if your goal is to avoid nursing homes at all costs, LTCI may not be the best way to go.

LTCI policies return from 60 percent to 65 percent of total premiums paid in benefits. This is much less than returns from other types of health insurance.

The fact that LTCI policies are improving: In a few years, you may be able to get a better deal.

Reasons For:

LTCI, although expensive, may provide protection against costly care. While the premiums may be wasted if you never need long-term care if you do need the care the insurance can effectively pay back your premiums many times over.

If you have family caregivers, the extra home care coverage in LTCI might make it possible to remain at home longer.

LTCI premium costs increase with age. Once you develop a serious medical condition, you probably won't qualify for coverage. Thus, it is better to buy LTCI early in the game if at all.

Some Guidelines

Do not buy long-term care insurance unless all of the following apply to you:

Each person in the household has more than $75,000 in assets (not counting the value of the primary residence)

Your annual retirement income per person in the household is over $30,000

You can pay premiums without having to "go without"

You could continue to afford the premiums, even if they increased by 20 percent or 30 percent in the future

What are the alternatives to long-term care insurance?

Here are some options for paying for long-term care, along with their advantages and drawbacks:

Applying For Medicaid

Eligibility rules vary from state to state, but beneficiaries are generally required to "spend down" their income and assets to qualify. New laws in many states make it possible for the spouses of Medicaid nursing home residents to keep more income and assets than previously allowed.

Reverse Mortgage, Equity Conversion

Reverse mortgages and other forms of home equity conversion are often viable alternatives for those who wish to remain at home. Seniors borrow money against the equity in their homes and defer repayment until they die or sell their house. However, for these options to make sense, a home must have a high monetary value and be fully or mostly paid for, and the individual must intend to stay in the home for the long term.

Self Insurance

Self-insurance - paying for costs if they arise - is a gamble but is the current strategy of choice for the majority. Self-insurance makes the most sense for people with major assets; for those who can afford a long nursing home stay and; for people of modest means, who would quickly qualify for Medicaid anyway.

How much does long-term care insurance cost?

Premiums for LTCI vary greatly, depending on your age at the time of purchase, the comprehensiveness of the coverage, and the company selling the plan.

According to the 2023 Long-Term Care Insurance Price Index survey published by the American Association for Long-Term Care Insurance (AALTCI), a traditional policy valued at $165,000 in benefits can cost $900 annually for a 55-year-old male. The equivalent coverage for a 55-year-old woman is $1,500. A couple both age 65 could expect to pay $3,750 combined. The two policies could provide each with $165,000 of future benefits. Adding an option that increased future benefits (inflation protection) by three percent annually would cost the couple almost twice as much ($7,150 combined). Costs vary significantly from insurer to insurer even for identical policies so it's always a good idea to shop around.

But, no matter how good a policy sounds, it's worth little if the company won't be there when it comes time to pay, so you should always buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up a company's rating by M. Best or Standard and Poor's, both of which evaluate the financial health of insurance companies.

Purchase long-term care insurance from a company that has an A+ or A++ rating from Best or an A, AA, or AAA rating from Standard and Poor's. Most public libraries have these references.

What should I look for in a long-term care insurance policy?

When you compare long-term care insurance policies, consider the following:

Flexibility. A policy that covers nursing homes should also cover assisted living, a better alternative for many people who can no longer live on their own. If you want a policy with home care, look for one that offers a full range of community-based services, including adult daycare, or that pays you a monthly cash allowance to spend as you please for care.

Eligibility. Look for a policy that bases eligibility on the need for help with activities of daily living. Policies that only pay for "medically necessary" care are not usually a good buy. To be sure you are covered for Alzheimer's disease, choose a policy that covers cognitive as well as physical disability and pays benefits if you meet either criterion.

Inflation. If you purchase a policy before the age of 75, inflation protection is essential to ensure adequate coverage when you need long-term care at some point in the future. Buy a policy that has an additional cost but automatically increases benefits at the rate of 5 percent annually.

Duration. Keep in mind that the chances of needing long-term care for five years or longer are relatively small. For most people, a policy covering two or three years will be more cost-effective.

Do I need long-term care insurance?

A study by the U.S. Department of Health and Human Services says that people who reach age 65 will likely have a 40 percent chance of entering a nursing home; however, the risk of needing nursing home care before age 75 is relatively low. Also, most people will not need nursing home care for longer than a year.

Your chances of needing long-term care vary with your age, health, family history and longevity, exercise habits, diet, smoking, and gender. Women are at higher risk because they live longer.

How does long-term care insurance work?

Long-term care insurance policies pay a set dollar amount per day for covered care during the benefit period stated in the policy.

Example: You choose a policy that pays $160 per day for five years. The maximum that policy will pay is $292,000 ($160 per day, times 365 days, times 5 years).

The older the covered individual, the higher the premium. For instance, premiums for a set amount of coverage for a 70-year-old individual are about three times those that would apply to a 50-year-old.

Most long-term care policies are indemnity-type policies, meaning they will pay (up to the policy's limits) for actual charges by the care provider. Some long-term care policies, instead of being based on indemnity, pay daily benefit amounts to the insured rather than paying for actual charges. The latter type of policy offers insureds greater flexibility, allowing them to pay for home care for example, and less paperwork.

In a long-term care policy, what is the elimination period?

This period constitutes the number of days the insured must wait after becoming eligible for benefits before coverage actually begins. The elimination period can range from zero to 90 days, or up to one year. The longer the elimination period, the lower the premium is.

How should I select a long-term care insurance provider?

If you decide that long-term care insurance (LTCI) is your best option, it is important to shop around for the right company. Some states have enacted important consumer protections in the LTCI area, while others have not. Do not assume the company is a safe bet just because it is licensed by the state insurance department to sell LTCI.

No matter how good a policy sounds, it is worth little if the company won't be there when it comes time to pay. Buy from a company with strong financial reserves. Unfortunately, there is no foolproof method for determining which companies are financially strong. However, it pays to look up a company's rating by A.M. Best or Standard and Poor's, both of which evaluate the financial health of insurance companies.

Purchase long-term care insurance from a company that has an A+ or A++ rating from Best or an A, AA, or AAA rating from Standard and Poor's. Most public libraries have these references.

Should I comparison shop for long-term care insurance coverage?

Seek independent advice before buying. You might find such guidance from a financial advisor; an elder-law attorney; government-funded counseling and information services; or consumer organizations.

Use a local independent agent or broker who has been recommended by someone reliable. Don't buy from an agent who sells door-to-door.

Read the policy from cover to cover; don't rely on marketing literature.

Don't be pressured to buy the first policy you see. Compare it with at least two others.

Don't pay more than one month's premium when you apply for coverage. In most states, after you buy a policy, you have thirty days to change your mind and get a refund.

Is it worthwhile buying special types of health insurance?

You may receive solicitations in the mail for the following types of health insurance, or you may run across ads for them. They are to be avoided at all costs.

We realize that there are worthwhile policies out there that fall into the categories we talk about. But we bring your attention to these categories so that you will be wary of them, and will not buy without careful research.

Dread-Disease Insurance. This limited coverage insures against only one specific disease. Further, if you already have this disease (i.e., have been diagnosed) at the time you buy the policy, you're not covered.

Hospital Indemnity Insurance. "Indemnity" insurance means that the policy will pay (up to the policy's limits) for actual charges by the care provider, as opposed to paying daily benefit amounts to the insured regardless of actual charges. The typical "hospital indemnity" policy will provide a very small amount of coverage per day, and is not worth it.

Medical-Surgical Insurance. This type of coverage also provides limited payments, and only for specified procedures.

Insurance Sold Through the Mail and On Television. Many policies sold through television advertisements and mail solicitations have the following negative attributes: They tend to cover accidents but not illness; they start out with low premiums that later rise unreasonably; they deny claims more than other types of insurance; and they tend to exclude pre-existing conditions.

Do I need disability insurance? How can I ensure I have adequate coverage?

If you have dependents, you've probably made sure that you have adequate life insurance coverage. But what about disability coverage? Although the incidence of permanent or temporary disability during the average individual's prime earning years is fairly high, many people neglect to adequately insure against this risk.

Disability insurance generally provides you with an income stream in case you are unable to earn income due to illness or accident. Here are some questions that will get you started in making sure you have adequate coverage.

What does your employer provide? Find out what types (if any) of disability coverage are provided. If no coverage is provided, you may be able to purchase coverage through your employer.

Is the employer or state-provided coverage adequate? Find out how much you will receive under any existing coverage you have. If the amount you will receive is not enough to support your family during an illness or other disability, you may wish to supplement it.

If employer and government coverage is insufficient you should purchase a private disability policy.

Before you buy a disability policy, check out the following factors:

Make sure the policy can be renewed every year.

Make sure that if you are able to work part-time when disabled, you will still receive benefits.

Choose as policy with a three to six-month waiting period, since it will be less costly, and set aside an emergency fund to cover the waiting period.

Be sure the policy covers you until you reach age 65, at which time you can obtain full Social Security benefits.

Be sure the policy pays when you can't perform work in your own field.

What's good about investing in IRAs?

There are two types of IRAs, traditional IRAs, and Roth IRAs, both of which are discussed in this Financial Guide. Traditional IRAs defer taxation of investment income, and withdrawals are taxable income except for withdrawals of previously nondeductible contributions. In most cases, however, contributions are deductible. Roth IRAs are subject to many of the same rules as traditional IRAs. Still, there are several differences, the primary one being that contributions are not deductible and are made after tax. As such, qualified distributions are generally tax-free.

Can anyone have a traditional IRA?

If you have income from wages or self-employment income, you can contribute up to $6,500 in 2023. As such, IRAs are available even to children who meet these conditions. Individuals aged 50 and older can contribute an additional $1,000 for a total of $7,500 in 2023.

Can my stay at home spouse have an IRA?

Yes. Contributions of $6,500 for each spouse are allowed in 2023 if the couple's wages or self-employment earnings are $13,000 or more. If less, the contribution amount cannot exceed your or your spouse's taxable compensation for the year.

What makes Roth IRAs so special?

Roth IRAs offer the following advantages:

Withdrawals, if they qualify, are completely exempt from income tax, unlike all other retirement plans.

You can quickly build up a Roth IRA account by converting traditional IRAs into Roth IRAs, but there is a tax cost.

Since there is no age requirement for withdrawals from a Roth IRA, more money can be left in an account and passed on to heirs than is allowed under other plans.

Can anyone have a Roth IRA?

Not everyone can have a Roth IRA. The following conditions apply:

You can't contribute to a Roth IRA for a year with income (AGI) above $153,000 if single or $228,000 on a joint return in 2023 ($144,000 and $214,000, respectively, in 2022).

You must have earnings from personal services (at least $6,500 or more) to make the (maximum) contribution, although an additional contribution of $1,000 is allowed for individuals aged 50 and over.

Can I set up a Roth IRA for my spouse?

Yes, subject to the income conditions above, contributions of $6,500 each are allowed if the couple's earnings are at least $13,000 in 2023 ($14,000 if only one of you is age 50 or older or $15,000 if both of you are age 50 or older). Each spouse can contribute up to the current limit; however, the combined total of your contributions can't be more than the taxable compensation reported on your joint return.

Can I set up a Roth IRA for my child?

Yes, for a child with personal service earnings and subject to the other income conditions.

What's the downside to Roth IRAs?

The following is a brief list of negative issues regarding Roth IRAs:

Roth IRA contributions are not tax-deductible. There's never a deduction for Roth IRA contributions.

To build a sizable Roth IRA fund, you must convert a traditional IRA (or, after 2007, funds from an employer plan). Conversions are taxable.

Under the new tax reform law, for taxable years beginning after December 31, 2017, if a contribution to a regular IRA has been converted into a contribution to a Roth IRA, it can no longer be converted back into a contribution to a regular IRA. This provision prevents a taxpayer from using recharacterization to unwind a Roth conversion.

What can I do if I converted to a Roth IRA and my income exceeds $100,000?

The income limit was permanently removed for tax years starting in 2010. Anyone, even those with high incomes, can convert from a traditional IRA to a Roth IRA.

What if my Roth IRA assets fall in value after conversion?

When you convert from a traditional IRA to a Roth IRA, you pay taxes on the value of your account as of the conversion date. If your account loses value and is worth less, you'll end up paying taxes on the money you no longer have.

Say you convert $50,000 in a traditional IRA to a Roth IRA, and the value drops to $35,000. If you didn't make any nondeductible contributions, the taxable distribution would be $50,000, which would be the amount you would be paying taxes on. However, now your account is only worth $35,000. By re-characterizing the account, you can avoid paying taxes on the money you no longer have ($50,000). You'll be back to a traditional IRA, but the account is now worth only $35,000.

Prior to 2018, the IRS allowed you "re-characterize" the account back to a traditional IRA, essentially putting you right back where you were - at least tax-wise. However, tax reform legislation passed in 2017 repealed this special rule, and recharacterizations are no longer permitted.

How are my heirs taxed on inherited Roth IRA wealth?

Your heirs are taxed as follows:

No tax paid on withdrawals as long as the funds have been in the Roth IRA for at least five years.

Starting in 2020 (SECURE Act), an heir inheriting a Roth IRA must withdraw the funds within ten (10) years after the account owner's death (some exceptions apply). Heirs with Roth IRAs inherited before 2020 can spread the withdrawal over their life, continuing the tax shelter for amounts not withdrawn.

Estate tax treatment is the same as for traditional IRAs.